A Multidisciplinary, Science-Based Approach to the Economics of Climate Change

Economic analyses of environmental mitigation and other interdisciplinary public policy issues can be much more useful if they critically examine what other disciplines have to say, insist on using the most relevant observational data and the scientific method, and examine lower cost alternatives to the change proposed. These general principles are illustrated by applying them to the case of climate change mitigation, one of the most interdisciplinary of public policy issues. The analysis shows how use of these principles leads to quite different conclusions than those of most previous such economic analyses, as follows: The economic benefits of reducing CO2 emissions may be about two orders of magnitude less than those estimated by most economists because the climate sensitivity factor (CSF) is much lower than assumed by the United Nations because feedback is negative rather than positive and the effects of CO2 emissions reductions on atmospheric CO2 appear to be short rather than long lasting.The costs of CO2 emissions reductions are very much higher than usually estimated because of technological and implementation problems recently identified.Geoengineering such as solar radiation management is a controversial alternative to CO2 emissions reductions that offers opportunities to greatly decrease these large costs, change global temperatures with far greater assurance of success, and eliminate the possibility of low probability, high consequence risks of rising temperatures, but has been largely ignored by economists.CO2 emissions reductions are economically unattractive since the very modest benefits remaining after the corrections for the above effects are quite unlikely to economically justify the much higher costs unless much lower cost geoengineering is used.The risk of catastrophic anthropogenic global warming appears to be so low that it is not currently worth doing anything to try to control it, including geoengineering

The Economic Effects of Climate Change

I review the literature on the economic impacts of climate change, an externality that is unprecedentedly large, complex, and uncertain. Only 14 estimates of the total damage cost of climate change have been published, a research effort that is in sharp contrast to the urgency of the public debate and the proposed expenditure on greenhouse gas emission reduction. These estimates show that climate change initially improves economic welfare. However, these benefits are sunk. Impacts would be predominantly negative later in the century. Global average impacts would be comparable to the welfare loss of a few percent of income, but substantially higher in poor countries. Still, the impact of climate change over a century is comparable to economic growth over a few years. There are over 200 estimates of the marginal damage cost of carbon dioxide emissions. The uncertainty about the social cost of carbon is large and right-skewed. For a standard discount rate, the expected value is $50/tC, which is much lower than the price of carbon in the European Union but much higher than the price of carbon elsewhere. Current estimates of the damage costs of climate change are incomplete, with positive and negative biases. Most important among the missing impacts are the indirect effects of climate change on economic development; large-scale biodiversity loss; low-probability, high-impact scenarios; the impact of climate change on violent conflict; and the impacts of climate change beyond 2100. From a welfare perspective, the impact of climate change is problematic because population is endogenous, and because policy analyses should separate impatience, risk aversion, and inequity aversion between and within countries

The uncertainty about the total economic impact of climate change

This paper uses a vote-counting procedure to estimate the probability density function of the total economic impact as a parabolic function of global warming. There is a wide range of uncertainty about the impact of climate change up to 3°C, and the information becomes progressively more diffuse beyond that. Warming greater than 3°C most likely has net negative impacts, and warming greater than 7°C may lead to a total welfare loss. The expected value of the social cost of carbon is about $29/tC in 2015 and rises at roughly 2% per year

Bootstraps for meta-analysis with an application to the total economic impact of climate change

Abstract Bootstrap and smoothed bootstrap methods are used to estimate the uncertainty about the total impact of climate change, and to assess the performance of commonly used impact functions. Kernel regression is extended to include restrictions on the functional form. Impact functions do not describe the primary estimates of the economic impacts very well, and monotonic functions do particularly badly. The impacts of climate change do not significantly deviate from zero until 2.5–3.5 ◦C warming. The uncertainty is large, and so is the risk premium. The ambiguity premium is small, however. The certainty equivalent impact is a negative 1.5 % of income for 2.5 ◦C, rising to 15 % (50 %) for 5.0 ◦C for a rate of risk aversion of 1 (2)

The economic impact of climate change

This paper surveys the literature on the economic impact of climate change. Different methods have been used to estimate the impact of climate change on human welfare. Studies agree that there are positive and negative impacts. In the short term, positive impacts may dominate, but these are largely sunk. In the longer term, there are net negative impacts. Poorer people tend to be more vulnerable to climate change. There is a trade-off between development policy and climate policy. Estimated aggregate impacts are not very large, but they are uncertain and incomplete. Estimates of the marginal impacts suggest that greenhouse gas emissions should be taxed, and that the emission reduction targets announced by politicians are probably too ambitious

Monetary valuation of the social cost of CO2 emissions : A critical survey

An expanding branch of research has estimated the potential costs of climate change, which are often expressed as the "Social Cost of Carbon" (SCC) or the costs of an additional ton of CO2 emissions. Estimates of the SCC can be used by policy makers to evaluate climate change policies and greenhouse gas emission reduction projects by means of cost-benefit analyses (CBAs). Such analyses are complicated by the wide range of SCC values that have been reported in the literature, and the large uncertainties involved in estimating the potential economic impacts and related costs of climate change. This study presents a critical review of the reported SCC estimates by examining some neglected consequences of climate change, uncertain and extreme scenarios of climate change, the discounting of future climate change effects, the treatment of individual risk aversion, and assumptions about social welfare. In view of the many uncertainties and omissions in conventional cost-benefit analyses of climate impacts and the SCC, alternative approaches to decision-making should be considered for climate policy